EU unlocks first recovery funds amid growing Delta fears 

From left to right: Paolo GENTILONI (European Commissioner for Economy), Pierre GRAMEGNA (Minister of Finance, Luxembourg), Luis DE GUINDOS (Vice President of the European Central Bank), Andrej SIRCELJ (Minister for Finance, Slovenia). [Council]

EU-27 finance ministers in the Ecofin Council approved on Tuesday (13 July) the first batch of twelve national recovery plans, paving the way for the first payments by the end of this month, as the spread of the Delta variant of COVID-19 across Europe increases the risk of new restrictions.

The first batch of countries endorsed by the Ecofin included Austria, Belgium, Denmark, France, Germany, Greece, Italy, Latvia, Luxembourg, Portugal, Slovakia, and Spain.

They will have access to the Recovery and Resilience Facility’s €672.5 billion. The first transfer of 13% of their national envelope will be delivered as soon as capitals complete the paperwork. 

After the first pre-financing payment, member states will receive their remaining grants and loans, in the case of those who requested the credits, over the next five years, once they fulfil the milestones and targets to implement the reforms and investments agreed with the European Commission.

The Commission’s executive vice-president, Valdis Dombrovskis, said the pre-financing for the first dozen countries is expected to be complete by the end of July.

“But this is only the start. Putting all plans into proper and rapid effect will be vital. Our shared priority is now to get these investments and reforms underway,” Dombrovskis said after an Ecofin meeting.

EU recovery fund struggles to find its true nature

Amid doubts around the implementation of the €800 billion recovery fund, European Commission and experts stress that the EU instrument is not a US-like emergency stimulus but an investment tool for the medium-term to transform the European economy.

The completion of the final hurdle for the money to starts flowing to the capitals came one year after the EU leaders’ historic decision to set up the recovery fund. 

At the same time, the spread of the Delta variant across the continent risks weighing down the European recovery, in particular in tourism-dependent nations, and is forcing countries like Spain to reimpose some restrictions.

The Ecofin’s approval came after national envoys assessed over the past weeks the details of these national recovery plans, previously validated by the European Commission. 

Some of the issues raised during the technical discussions, EU diplomats explained, were related to the auditing and control mechanisms, the front-loading of reforms in the case of some countries, including Spain, or the ‘green’ expenditure.  

Slovenian Finance Minister Andrej Šircelj, whose country is holding the EU Council’s rotating presidency this semester, said the discussion on Tuesday was “very positive” but emphasised the importance of the control mechanisms when implementing the recovery funds.

Following this first approval, a new Ecofin, scheduled for 26 July, is meant to approve the plans of Cyprus, Croatia, Slovenia, and Lithuania.

In addition, the Commission is currently assessing the plans submitted by Ireland, Poland, Czech Republic, and Hungary. In the case of the Irish proposal, Dombrovskis said the assessment is almost ready and could be sent to the Ecofin on 26 July. 

The Commission, however, did not complete the approval of the Hungarian plan within the two-month deadline stipulated in the RRF regulation. 

The EU executive considers that Budapest did not address sufficiently some of the country recommendations related to anti-corruption mechanisms, and that the auditing framework of the recovery funds should be strengthened.

The Commission’s concerns came against the backdrop of the broad criticism Hungary received after passing a law that discriminates the LGTBQI.

Dombrovskis said the Commission is discussing with the Hungarian government the latest clarifications, submitted last Friday. 

“Should the assessment take more weeks than days, we will propose an extension of the two-month deadline,” he explained. 

The approval of the first batch of national plans came as the Commission announced it had raised €10 billion in the markets for the recovery fund via an EU bond issuance on Tuesday.

Together with the previous syndicated bond sales in June and July, the EU executive has obtained from investors around €45 billion. The institution was confident about having sufficient money to pay in one instalment the pre-financing needs of the 12 countries approved on Tuesday.

Recovery fund faces new hurdles with first disbursements

The European Commission could find it difficult to transfer the first tranche of the recovery funds to all member states according to its calendar, as most plans are expected to be approved at the same time and there will be limited capacity to borrow from the markets.

[Edited by Zoran Radosavljevic]

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